Earliest bubble known to mankind is probably the tulip bubble in Europe in sixteenth century and such bubble and burst has become frequent since the introduction of stock market in the mid eighteenth century. The last in the series so far is that of May 2006 when the asset class melted down under tightening liquidity and slowing economy.Two burst which has left very few unaffected in the last two decades are those of 1990’s and 2000 dot com burst. The impact of them is most widely felt because of the increasing integration of global economy after the Uruguay round of Globalization talks.1990’s Boom and BurstIn the 90’s the United States economy saw massive growth the Dow Jones Industrial Index moved from 2753 in 1989 to 11,497 in 1999. In the mean time the NADDAQ composite index grown by 9 times from 455 to 4069.
During this growth period there were some serious crash which dented this one way direction of the market. The first and most significant among them is the crash of October1990. The market downward trend kept going on for complete three months unlike the couple of days crash of 1929 and 1987. During this time the Dow Jones index falls by some 21 percent while NASDAQ falls by 31 percent. The 1990’s fall is strange in terms that it came after the back of massive crash of 1987; generally investors beware for a longer time then three years before riding euphoria. (Shiller,2000)The main contributors to the burst are euphoric evaluation of housing market and over enthusiasm over the micro computer market.
It was believed that the housing market will keep on booming with the baby boomers and the micro computer is such an inventive product that it will change the way of life (Kozmetsky,2005). People start believing those loft predictions and growth rate which turned out to be popper. Other major reason for the burst was the issuance of junk bonds to leverage buyout of the companies (Kozmetsky,2005).
As the success of mergers and acquisitions has shown that putting money on those synergizing companies were not worthwhile.Market is usually much more intelligent than people working in business and it have swift way of neutralizing this euphoria. In hindsight it seemed prudent that the market was tanked for justifiable reasons as housing market didn’t show result till late 1990’s under Clinton administration and computer didn’t change the life of people till the popularity of internet.Dot Com Burst of 2000After a decade of strong growth and rising stock market most investors become complacent and when dotcom came every body from the taxi driver to the guys on NYSE wants to cash on it (Bolten, 2000). Lofty evaluations were given to company on the bases of future earning and it was as easy to find a venture capitalist as Wal-Mart on street. Anything related to dotcom was big and promises to turn a street unknown into a dotcom billionaire.
Everything from banking to selling ice cream was about to get online and most companies jumped into the bandwagon without doing the backend work.After two years of euphoria the bubble finally burst as investors realized that the companies which have sold loft predictions for the next decade doesn’t have sound revenue model and previously untested projections don’t worth as much as they were shown on paper.The reality strikes when the giants of the online business Amazon and Yahoo failed to deliver profit and remain in red for most part of 2000. Few of the prominent reasons why dotcom bubble was busted in the first place were – (Sohel, 2002) –Lack of Details – There is lack of significant details available for the product. Many websites went into the business with a belief that on internet the customers have lack of opportunity in term of physically involving with the product.
To make up this deficiency they stuff the pages will bigger pictures which take ages to load and also took away description space. In the end all the customer ended up doing is gazing some images of the product without any concrete information regarding the features of the product.Lack of physical involvement with the product is one of the prominent reason people don’t buy products online. It is one thing to purchase a DVD online but when it comes to stuff like clothes, people like to feel the product, try it and then like to purchase it. Similarly in technically complex products, people first like to have a demonstration and then like to purchase the product.Most companies think like manufacturers and arrange their products accordingly. This was one of the biggest hindrances in online sales; people don’t usually know where to locate the product. For example if one is looking for breakfast cereals then he has to surf through beans or pulses families to locate the product as most sites position the product according to manufacturer categorization rather than how the customer is searching the product.
(Sinkkonen,2001)With more and more companies getting on the viral marketing bandwagon and planting people in chat room and social forums, online testimonials have lost their sheen. It is very difficult to know who is providing sponsored opinion and who is writing a genuine feedback regarding the product.Most websites have a session ending java script in the coding or incompetent shopping cart which makes the customer go through the whole process again and again. Once the customer goes through such a situation there is hardly any chance that he will go again to that site and try buying the product from there.Lack or Excess of Demand – Companies had very little knowledge or experience to predict the demand thus left undershooting or over prepared. In both the scenarios they end up loosing. Under prepared companies left with log of orders which was either delayed reaching to the customer or was never shipped.
While over prepared players left with excessive capabilities and when the burst happened they were the first to take protection of chapter 11.Apart from the number of players in the market the security apprehensions are heightened by regular information theft, online payment fraud, phising and other security threats. The complication of the technology also ensured that normal person can’t ever be 100 percent sure whether the payment he is making is completely safe (Furnell & Karweni,1999)If we look the balance sheet of the companies now most of them are still struggling to generate revenue leave apart the lofty projections and only companies which are slowly getting some success in online business are those which has the brick and mortar infrastructure in place.